What Should We Do with $10,000 Gift from Grandpa?

Question

I am an avid reader of Moolanomy…I read it every morning at work. I love reading personal stories about people with personal finance questions, and now I have one myself!

I am 23 years old and getting married in June 2009. We are mostly paying for the wedding ourselves, and have been saving up. We’d also like to buy a house around April 2009. A background on us, we collectively have around $35,000 in student loan debt, no credit debt, no car loan debt. We are pretty frugal. Our incomes will collectively be around $72,000 by the time we get married.

We’re in a pretty good situation, but we’re still trying our best to save enough money for a wedding, honeymoon and a house – all around the same time. I just received a generous check (windfall) from my grandfather for $10,000 to be used for whatever I want. My question is, at my age, would it be smart to put this toward a down payment and build some equity in a house? Or put it toward the wedding? Or should we try to pay down some of our student loan debt? I have been putting money into my employer-sponsored 401k…should I throw some that way? There are so many options, and this is a very unexpected windfall. So what would you do?

Answer

Answer from Pinyo

First, thank you for being an avid reader — it’s a great feeling to know that someone is finding my articles useful. I think you are doing terrific for a 23 years old — no bad debt and already contributing to your 401k. Now, let’s look at your situation more closely and I will just list out some points that you may want to consider as you make your decision:

Income – You mention that your combined income will be $72,000. I believe that you should never count on income you do not have yet. Therefore, it’s better to formulate your plan based on what you currently have.

Windfall – Just because you received a windfall doesn’t mean you have to use it. Since you only have student loans, you could save the $10,000 in an interest bearing account as an emergency fund.

House – Slow it down. You are going through several major life changes and there’s no need to rush. You just finished your school, getting married, and thinking about buying a house. Many things can change during these few years and you may want to consider holding off on the house until things are sorted out. For example, one of you could land a better job that’s in a different region, you may have a kid and school district becomes a more important factor, etc.

401k – I think it’s great that you are starting early and I’d encourage you to contribute enough to take full advantage of your employer’s matching contributions. There’s no need to “max it out” yet while you still have your student loans and trying to save up for a house.

Student Loans – The answer will depends on what you are paying in interest. Many people believe that we will be looking at 7-10% rate of return for the stock market over the next few years. If your interest rate is significant lower, then it may be worthwhile to pay the minimum and use the difference to achieve your other financial goals.

Wedding – First, congratulation! Regarding this, you’ll have to sit down with your other half and decide what’s more important: (1) wedding, (2) to be debt free, or (3) to save up for the house. Remember that you can have a frugal wedding that’s as memorable as an extravagant one. For instance my friends, used their money to buy a house and had their wedding in the backyard. I thought it was a lovely and memorable wedding. And the house was the best wedding gift they received for their effort.

Please remember that these are just ideas to help you get started in your decision making process. Whatever you decide, I think you are already in a terrific financial position…congratulation. Now, here are what other bloggers have to say:

Because your financial life appears to be in decent order, I believe this situation is all about your own priorities. There are three possible expenses: wedding, house, student loans. If you want nice wedding/honeymoon and don’t think you’ll be able to save enough, then you put all or part of the money towards that. If you feel passionate about debt-repayment and would really like to see that gone, then put it towards that.

But since it appears that you’re already saving for the wedding and I assume you already had a debt-repayment plan of some sort, I’d suggest putting the money towards a down-payment fund. If your down-payment is high enough, you shouldn’t have to worry about private mortgage insurance, which will save you money. And you’ll be that much closer to owning your house.

As far as buying the house, I would hold off until after the wedding. I’ve known several weddings called off at the last minute (some rescheduled, some not) and believe it’s the wisest step to hold off on major joint purchases until afterward.

Congrats on the upcoming wedding, no debt (except the loans), and the nice windfall. You’re definitely on your way, and a step ahead by reading Moolanomy everyday.

If I were you I would first consider the interest rate on YOUR student loan debt. If it’s above 6% I would strongly encourage you to use it towards that debt. If it’s below that (more likely) then I would use the money towards your portion of the wedding expenses, paying just the minimums on your student loans. The left over amount I would put in the 401K.

I would not buy a house with someone prior to getting married, nor would I pay their debts off. I would wait on the house and her debt till you get married. Then, rent for a while and save up money for a down payment. That’s the proper order of things here in my opinion. It will feel more rewarding that way too.

I would say wait to buy the house, weddings are a lot of stress and work and you are better off just doing one thing at a time so you can enjoy it. Get married next year and then start looking for a house when you recover from that. The year I got married we had fixed up and sold my old house, moved into my wife’s house, got married, and bought another house all in the space of a few months which was very difficult and not very enjoyable (and very unnecessary).

As for the finances, I would make sure you take advantage of any company match in the 401(k). After that, rather than making any big financial decisions with so many unknowns ahead (cost of wedding, house etc) – maybe just put the $10,000 into a high interest savings account until after the wedding.

Well, if you think about it, money is all the same. If you put the inheritance into one thing, that’ll give you more cash each month to put towards something else and all your goals will be closer.

So, for that reason, I’d put the windfall into whichever thing you want to finish first. Although it’s a good idea to fund your 401(k) for example, that’s such an ongoing thing that I don’t think you’ll feel the benefit as much. Similarly, unless your student loan interest rate is high (in which case you should probably be putting it ahead of your other goals) I wouldn’t bother with that.

That leaves you with three remaining goals: wedding, honeymoon or house. If you can stick to your original budgets then this windfall will allow you to have all three funded sooner than expected. If you think you’d find that difficult (e.g. putting the money towards your wedding meaning that you’d upgrade the wedding) then it would be most sensible to use the windfall towards a house deposit. If that wouldn’t be the case I’d put it towards whichever you wanted to fund first – probably the wedding since you’re saving for that already – and put the money you’re saving every month towards your other goals.

Don’t forget to spend about $100 of the money on some completely frivolous purchase. Windfalls are meant to be fun.

A wedding, a house and a honeymoon all within a few months? That sounds like a lot to deal with so quickly! Personally I would put off buying a house. You don’t NEED to buy a house right away, and my opinion is that it is a common mistake a lot of young couples make, to just jump into a house that they can’t afford as soon as they get married. Adding a mortgage debt to the financial equation right away can be stressful. There is no shame in renting, and renting at an affordable price will allow you to do some work on saving a nice big down payment for a house (so that you can avoid paying private mortgage insurance) as well as paying down a chunk of that student loan debt. It sounds like you’ve got a nice income to start out, so working on that shouldn’t be a huge problem.

I would put the money down towards your wedding and honeymoon expenses, and hopefully you’ll be able to save enough to not have to worry about carrying wedding debt into your new life together as well. Good luck and God bless!

Making a decision with $10,000 is probably too much stress right now considering what is going on in your life. You don’t HAVE to decide right now. Since this truly IS a “windfall,” I would recommend putting it into a CD that will mature 6 months AFTER your wedding. That will give you time to sort out your priorities and get some really good financial advice. There should be NO PRESSURE on you right now to “do” something with this money. Sometimes we put pressure on ourselves! Don’t. Slow down. Think. Don’t act without thoroughly thinking through what all your options are. Making a wise decision now has the potential to improve your life for years to come, but don’t allow others or yourself to put undue pressure on you to make a decision today.

First off, congratulations on your wedding and for taking an interest in your finances at such a young age. You are both in a very good financial position right now and are well ahead of many of your peers. That said, your financial decisions in the next few months will have a lasting affect on how your next few years will turn out.

I would hold off on buying a house right away. You will be right in the middle of planning your wedding and honeymoon during the time you hope to purchase a house. A less stressful route would be to space these events out if possible. Consider going on your honeymoon a couple months after your wedding if possible. That way you have time to settle into a routine and don’t have the added stress of preparing for the honeymoon while preparing for the wedding. This may also allow you go on your honeymoon out of season to save money and avoid crowds.

As for the $10k, I think it is best to sit on it awhile before spending it. As you approach your wedding, you will have a better idea of what your wedding and honeymoon expenses will be. Getting married and setting up a household can be an expensive endeavor, and it’s best to start off with as little debt as possible.

As for the house, there really is no rush. When you are young you typically have more flexibility in where and how you live and aren’t tied down to one location. One of you may decide to change careers which could involve a move, or you may have children and need a larger home. Until you know exactly what your needs will be, it’s probably best to wait before buying a home.

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Leave Your Comment (11 Comments)

Well done to the newlyweds and the great advice everyone is giving them. It may be an occupational hazard but I read his question and all the great advice, and was a bit turned that nobody mentioned anything about the tax side of it all.

No the wedding isn’t a write off.

Making a contribution to an IRA is a tax deduction.

Paying the interest on his school loans, a tax deduction.

Having a mortgage a tax deduction along with the property tax and a few other “homeowner stuff” that comes along with buying a house.

The windfall, not being claimed as income. Very cool.

I’d say your reader has his ducks lined up pretty good. The best advice given and would be mine as well, prioritize what is most important to you. Get as much information as you can from all angles then proceed. Mean while put the windfall into a savings account with a huge interest rate.

Do you know how much the wedding is likely to cost? In England it’s customary to have a sit-down meal with wine for around 70 people and an after party with food and cash bar. A wedding like that plus simple trimmings is going to set someone back around £10k.

If you had a basic idea of how much the wedding was likely to be, and added that onto your debt load, then you’ll see your total target figure. That might give you a better handle on what’s possible.

Personally, I’d hold back on funding a wedding until I was out of debt, and just move in together, but I have no issues with living together before being married.

I agree on waiting to buy the house. You never know what could go wrong and cost you tons of money right before/after the wedding. If it were me, I would put the money straight into a high interest savings account as an emergency fund since it was money that I didn’t have to start with … so you won’t miss it really if you stash it for a rainy day.

First of all I would like to congratulate you on your wedding as well. It sounds like you really work together. Most partners have different spending habits.

I am in sort of the same situation, just getting out of college and looking at getting rid of loans, paying for a place to live, and possibly looking to get married soon. I want to save for these things, though. I am looking at popping the question in the next year or two, but I have no clue how I will pay for the wedding (I don’t have a house like you mentioned). My income is significantly less than what their combined income is and I am looking to get rid of some of my debt first. Would you suggest saving for the wedding or saving for down the road. I’m also in a tough situation because I’m looking at getting my MBA so I might be taking out more debt.

Looking back, I think I would have thrown in a dash of Ron (if I’d known what he was going to write). After all, there’s no big rush in applying it. The wedding/honeymoon/house aren’t for almost a year.

For what it’s worth, I’m with the “wait to buy the house” crowd. Not only is it a huge task, it’s insanely time-consuming, very stressful, and very expensive. Enjoy being newlyweds, enjoy the less stressful apartment life for awhile, and relax. Take a nice vacation with a couple grand of the money, and put the rest in an emergency fund. That way, you can be more aggressive about tackling your debt – you won’t be trying to pay down debt AND put cash away.

I’ll second everyone that said that you need to slow it down and put the house thing on the back burner. New couples don’t need to be buying houses until they are married for a while. Trust me you only think you know what you want. Rent for a while and find out together what is important to you in a house.

If I was going to prioritize your money, I would probably make sure I had the wedding covered so you don’t rack up any new debt there. Then I would dump the rest on the student loan regardless of the interest rate.

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